Severstal makes move

Russian steelmaker offers $670 million for Esmark

May 21, 2008|By Andrea K. Walker | Andrea K. Walker,Sun reporter

Russian steelmaker OAO Severstal, the new owner of Sparrows Point, submitted a $670 million offer yesterday for West Virginia steel company Esmark Inc., whose own bid to buy the Baltimore County steel mill collapsed in December.

Severstal's bid comes just two weeks after it closed its $810 million purchase of Sparrows Point from ArcelorMittal and days after it agreed to buy an Ohio steelmaker. If successful, it would bring Sparrows Point and Esmark's money-losing Wheeling-Pittsburgh plant under the same corporate banner - a move Esmark had planned to make.

Severstal's $17-a-share bid throws into doubt a matching buyout offer from India's Essar Steel Holdings that Esmark accepted three weeks ago. Severstal said its bid had the backing of the United Steelworkers union.

Last week the USW announced its opposition to the Essar buyout, contending that Wheeling, W.Va.-based Esmark accepted the deal without giving the USW adequate notice or a chance to put forth an alternative.

"The union support that Severstal has goes a long way to helping assure the completion of any possible transaction," said Michael Henson, a Severstal spokesman.

Union officials did not respond to requests for comment yesterday.

Craig Bouchard, president of Esmark, said in a phone interview that the company's board will consider Severstal's offer but offered no time frame for a decision.

"Yes, we've received the letter and we appreciate the fact that we were sent this letter," Bouchard said. "Our board takes all of this seriously and our only objective is to get the best offer for our shareholders. That's our fiduciary objective."

Madhu Vuppuluri, president of Essar North America, declined to comment, saying he did not have enough information.

Esmark had hoped to use the Sparrows Point plant to help build up its financially troubled Wheeling-Pitt steel plant in West Virginia. Plans called for Sparrows Point to ship 850,000 tons of cheap slab to Wheeling-Pitt.

Henson said Severstal would invest in the Wheeling-Pitt plant to make it profitable. Severstal sees similar synergies between Wheeling-Pitt and Sparrows Point if it wins the bid, Henson said. He also said Sparrows Point, which makes steel for the construction industry, could enhance Esmark's business in that market.

Severstal informed Esmark of its offer in a letter to the board yesterday morning, Henson said.

The letter, signed by Gregory Mason, chief executive of Severstal International, said Esmark fits in well with Severstal's other U.S. operations. The Russian steelmaker, which has been expanding its U.S. holdings, also owns the former Rouge Steel plant in Dearborn, Mich., and SeverCorr in Columbia, Miss. It agreed last week to buy Warren, Ohio-based WCI Steel Inc. for $140 million.

"Severstal wouldn't be looking to move forward with the acquisition if they didn't think they could enhance value and return it to profitability," Henson said.

One steel analyst said the backing of the union was a strong bargaining tool for Severstal.

"Under terms of the labor contract, the union has the right to find a counter-bidder," said Charles Bradford, a metals analyst with Soleil Securities in New York.

Bradford also said Severstal would be a better fit than Essar.

"The combination makes sense," he said. "The plants would work well together. It would enhance output at Sparrows Point."

The Sparrows Point deal doesn't necessarily mean Essar doesn't have a chance, Bradford said. The company could raise its bid or make peace with the union.

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